Motilal Oswal neutral on Pantaloon Retail

“Pantaloon Retail 2QFY12 results are below estimates with core retail PAT down 71% YoY to INR135m. Although EBITDA rose 9.6% led by 40bp margin expansion, 47% higher interest burden and 35% higher depreciation impacted PAT. SSS growth in Value retail declined to 3% and Lifestyle segments to 5%; Home retailing SSS declined to 3.2%. PF has reported expansion in both gross and EBIDTA margins across standalone and FVRL which show the benefit of cost cutting measures like store closures (est 0.4m sq ft during the quarter, 3BB and FB, 1 Pantaloons) and employee productivity. We estimate that gross core retail debt of PF has increased from INR48b in June2011 to INR57b; standalone debt has increased INR6.5b while FVRL has seen an increase of INR2.5b. We see little scope of any reduction in interest cost without significant equity capital infusion or fund raising through stake sale in financial services and other non-core businesses. We believe management target of INR20b debt reduction in 12-18 months is highly optimistic.”

“We are reducing JY12 and JY13 estimates by 33% and 22% mainly due to 14% and 8% increase in interest cost. We have factored in ~INR3b increase in JY12 debt from Dec-2011 levels. For JY13, we are factoring in 100bp decline in interest rates and INR4.7b increase in debt. Our estimates don't factor in any reduction in debt due to sale of non-core assets. The stock trades at 33x JY12 and 23.3x JY13 EPS estimates of INR5.4 and INR7.6. We are Neutral on the stock,” says Motilal Oswal research report. 

Public holding more than 90% in Indian cos

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